Sunday, September 21, 2008

Last week, Sen. McCain came out in favor of regulating financial markets. That is a departure from traditional Republican orthodoxy that is truly astonishing. For 100 years or more, Republicans and many Democrats have told us that markets are "self-regulating." It does not matter what market you are talking about -- market for consumer goods, for machinery, for finance capital such as bank loans or mortgages -- sooner or later supply will meet demand and prices will reach a reasonable level. Markets do not need government regulation; on the contrary economic problems are caused by government regulation.

But now this orthodoxy has been given up by almost everyone who has trumpeted it for many years including the White House and Republican stalwarts like Sen. McCain. The new orthodoxy is that we must return to a law (adopted during the Great Depression after 1929 and abolished under Pres. Clinton) that separated ordinary banks from investment banks. Ordinary banks are where you deposit your paycheck, maybe open a savings account, and borrow money to buy a house or a car. Investment banks do not do any of that; they operate with large sums of investment funds and, frankly, gamble with those funds trying to make money. For a while everybody wins and then, as is happening currently, the bottom drops out and many people lose. (The CEO’s of bankrupt investment houses walk off with $200 million for their old age.) But we are now being told that all of this could be avoided if only we do not allow ordinary banks to gamble in the way of investment and if, secondly, we kept a closer eye on the investment banks’ gambling.

Not surprisingly, that oversimplifies our problem. In the last 40 years there have been regular government bailouts of private businesses -- the Pennsylvania Railroad in 1970, the Franklin National Bank and New York City in 1975, Chrysler in 1980, the Savings and Loan Banks in 1990, the airline industry in 2002, and now one investment bank after another to the tune of close to $1 trillion.

It is clearly not true that in all these different cases the problem was a confusion of ordinary and investment banking. Many of the bailouts occurred when ordinary and investment banks were still distinct. Our economic system has pervasive problems which our experts and legislators still do not want to recognize.

Here is just one of them. In a capitalist system everyone pursues his or her private interest and the "unseen hand" of the market is supposed to assure us that the outcome will be the best for all of us. You look after what's good for you; I look after myself and you and I and everyone else will be better off. Let's look at that.

Suppose you have a small business. You manufacture specialty paints. Your business does okay but your profit margin is small. Then, one day, you have an inspiration. You see that the cost of disposing of your waste, much of it hazardous, is significant. So you begin dumping your waste in the woods, save the money of proper disposal and increase your profit. That is clearly a good strategy for you but if everybody did this, the Earth would soon become unlivable from all the pollution. The market is not going to make that problem go away. What is good for the individual often is bad if practiced by everyone.

One more example: another way of raising your profit margin is to lower wages. Since your business is small you may even take on a few illegal immigrants and pay them less than minimum wage. The government is never going to check a small business like yours..

This strategy too will increase your profits and be good for you. If all enterprises follow the same policy the large majority of the population would have a lot less money at their disposal. Demand for ordinary consumption goods would fall and some businesses would go broke and the economy would go into a recession, if not worse. Policies that significantly decrease consumer demand are not good for the economy even though they may be very good for individual enterprises.

There is no reason to think that capitalist markets regulate themselves. Capitalist enterprises must be carefully supervised so that they do not adopt policies that are harmful to the economy as a whole.

The current crisis is the result of the religious faith in the self-regulating market -- a faith that has no support in actual fact. It is supported only by the self interest of capitalist enterprisers who do not want to be limited in the ways they make money, even if their methods are in the short or in the long run bad for consumers or the country as a whole.

This blatant self-interest of the pundits associated with business is still at work when they try to tell us that we just need to restore a one law that separates ordinary from investment banks and then everything will be fine. Unless the government takes a firm hand to protect us against capitalists, we will never be fine.

But since the capitalists own the government, for instance because they pay for the presidential of campaigns of Obama and McCain, we are bound to hear misleading diagnoses of our present problems. Ordinary citizens and voters should not believe everything they're told.

Sunday, September 14, 2008

Americans have long felt aggrieved by the 9/11. Here we are the most powerful nation of the world, completely innocent, sneakily attacked by a bunch of terrorists, mostly from Saudi Arabia, a firm ally of ours in the Mideast. We found ourselves in a "war on terrorism."

Seven years later, it is time to think again about what happened there. Is it really true that we are "the most powerful nation on earth"?

Many people think that our power rests on two pillars: our military and our economy. Our military consumes more than half of the annual expenditures of the US government. That enormous sum pays for the costs of past wars and the maintenance of the current military establishment, including the wars in Iraq and Afghanistan. We have been fighting those two wars for more than five years -- longer than either World War I or World War II. So far it is not clear that we have won. Our military has been victorious only in attacks on tiny, tiny countries when Pres. Reagan attacked the Caribbean island nation of Grenada, and the elder Bush attacked the small nation of Panama. We have lost most serious wars since the middle of the last century. We lost to the North Vietnamese during the war in Vietnam and were fought to a draw by the Chinese during the war in Korea. Yes, it is true that we have enough nuclear weapons to annihilate all human life on earth. Yes it is also true that our military is more high tech than anyone else's but once again we seem to be unable to win out over the homemade explosives of shadowy opponents in Iraq or the Taliban of Afghanistan -- neither of them as well equipped as we are.

9/11 is just one more example of that. When the planes left Logan Airport and disappeared from the radar we could not even get our fighter planes up in the air. We were defenseless in spite of all the incredible expenditure for the military.

As to our economic power, the United States owes the $31,000 for every man, woman and child living in our country. We are heavily indebted; our debt is growing with every year at the same time as we have no money to keep up our roads and bridges, to give a decent education to all children, or to provide a minimally acceptable life for everyone. At the moment we can't even provide jobs for everyone or guarantee a roof over their head.

So much for two pillars of our power: our military is not equipped to fight our actual enemies. Our economy is in shambles. But there is a whole other aspect of national power which we have not even mentioned yet.

During the Vietnam war, the North Vietnamese moved troops and weapons and supplies through the jungles on bicycles. Due to a massive national effort they managed to defeat a richer and much better equipped, a "more powerful" enemy. The power of the nation does not only depend on its money and its weapons. The power of a nation, in the end, depends on the dedication of its citizens to national goals and to maintaining national institutions.

During World War II, the whole nation pitched in. "There was a war on" and everything was different; many people gladly made great sacrifices. But lately we have been unable to mobilize our national energies. After 9/11, President Bush did not call for a national mobilization. He told people to go shopping. No national coming together was called for or ever thought about. Bumper stickers saying "United we stand" was all we could do as a response to the attack on the World Trade Center and the Pentagon.

Only half of all Americans vote in presidential elections. 9/11 and the wars we are fighting abroad have not changed that. The military can barely fill its ranks and its recruits are overwhelmingly drawn from the poor for whom we do not manage to provide the prospects of decent work for decent pay. Ours is not an army of the people; it is an army of those who have few other alternatives or, more and more, an army of foreigners who join in order to get a green card or citizenship.

In the last 50 years, American political life has undergone profound changes. Our political parties used to be large organizations closely connected to ordinary voters. Every precinct and ward had their party organizations, further subdivided into individual block committees. The parties employed a large network of volunteers whose job it was to know the people on their block, to listen to their grievances and to get them to vote for their candidate at election time.

The same was true of other organizations that had political agendas -- ethnic organizations, opponents of alcohol, PTA's and such. American democracy involved a significant number of citizens. Today the only role for citizens in politics is to send money. They neither work in the organization nor have any say when it comes to making policy.

Politics has become thoroughly professionalized. It is the business of full-time, paid operatives; citizens do not participate. If they do, if they take a grievances to a city counselor or to City Hall, they may get a hearing -- if they're lucky -- but the odds are that no one will take their recommendations seriously. They may be listened to but will not be heard. Professional politicians and bureaucrats are in charge -- citizens no longer have any power. They vote and after that they are supposed to disappear quietly.

As a result citizens have become passive. They do not trust the government to pay attention to them. Even if they face serious problems, they complain to their friends but not to the government, for what's the use?

One example of that: as the new school year begins, many school districts are unable to provide the most basic supplies such as pencils or toilet paper. The schools must appeal to parents to provide these essential items. But we hear no loud complaints about that.

Another example: more than two thirds of the electorate want the war in Iraq to end. There is no sign that anyone in the government is paying serious attention to that.

We have become weak in spite of our arsenal of atomic bombs because we lack unity as a nation. We have fragmented into different groups. There is the government and its bureaucrats. They say they represent us, but do not really. Instead they do as they please. Then there are the working Americans who barely get by these days. The government is willing to save the banks but not the houses or jobs of ordinary Americans. They work but the government looks away from them. Then there are other Americans who do not manage to get by even though many of them work more than one job. Others again will take any job if only they could get one. Their best chance is to fight America's wars.

9/11 was not an attack on us although ordinary citizens lost their lives. The airplanes attacked the US government which was even then hatching plans for Mideast wars. They had been thinking about that for years but had not talked about them. Our government does not tell us Americans what it is planning; once it has decided to go to war it tries to sell that project to us by telling lies. It stages elaborate electoral campaigns to make us think that it represents us.

9/11 and its aftermath exposes the weakness of America: all our smart bombs are no remedy for the weakness of the nation whose government has separated itself from the people.